Egypt creates its first sovereignty fund in a step to pursue private sector expertise to render mismanaged assets productive

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Consecutive governments of Egypt have inherited a state-controlled economy since the 50s and early 60s.  This nature of economy has been a result of president Abdel Nasser’s political efforts to gain popularity and legitimacy after leading a people-backed military coup against the king of Egypt in 1952.  It was also a result of implementing socialist policies in a process to gain approval from the most powerful ally at the time the Soviet Union.  Since the 70’s, during president Sadat’s era, the government of Egypt has been trying to reform this il-structured economy.

In 1991 throughout president Mubarak’s authority the government agreed to work with international lenders on an economic restructuring plan to help it repair a failing economy.  The goal was originally to sell 314 public sector companies to private investors, which was partially realized by selling 164 of which.  However, these government efforts were shaded by accusations of corruption, inside trading in addition to continuing workers protests surrounding the Egyptian parliament. Prime minister Ahmed Nazif, who was appointed in 2004 with a mandate to repair the economy, had failed to retune the public’s expectations to privatization.  In 2010 the New York times published an article titled “Egypt Concedes to Resistance on Privatization Push” in which Michael Slackman considered the year 2010 the end of this ambitious mission not knowing that one year later, the government’s failure of meeting public expectations will lead to a revolution that ends 30 years of Mubarak’s rule.   In this article he quoted a government official who spoke on the condition of anonymity so as not to offend the public saying: “That is the brake on reform,” (referring to end of privatization), “They have grown up with the state doing everything: ‘You educate me, give me a degree, you give me a job, when I die you bury me — and I do nothing.’” (referring to the public expectations from the Egyptian government).

In June 2014, only 3 and half years after a revolution that ousted Mubarak and only one year after a second revolution that ended the short term of the brotherhood presidency, president Abdel Fattah El-Sisi was elected to office.  In his first mandate he managed to take economic reform measures that Mubarak never risked to take and that Sadat had tried in 1977 only to rescind shortly after massive demonstrations erupted (the bread riots). It was an attempt to reform the economy that followed an IMF agreement at the time.  El-Sisi, on the other hand, managed to free-float the local currency against the dollar, decrease government subsidies of power, increased the state foreign currency reserves, shrunk the public budget deficit and increased Egypt’s credit rating from Caa1 (Negative) in 2013 to B3 (Stable) in 2017 while enforcing social security actions for the more vulnerable segments of the society.  He managed to do that in much harsher economic conditions than those Mubarak was facing.  Nevertheless, he was reelected for a second term in 2018 despite the soaring inflation hikes Egyptians faced during his first mandate.  It could be due to the fact that Egyptians have seen the negative outcome of massive protests and chaos on economy and living conditions in the few years that followed 2011 revolutions in Egypt and neighboring countries or it could be due to his popular support as a proclaimed hero who saved Egypt from the claws of the Islamists.  We will never know for sure but the fact is, that he has taken the necessary steps and he has been reelected for a second mandate to finish his job.

Currently the Egyptian minister of planning said in June 2018 that for the first time ever the government is launching its first sovereign fund by the end of the year and will begin a roadshow in the first half of 2019 to gather private investment, Bloomberg.  The news site added that this fund is modeled after sovereign funds in India and Malaysia, and that Egypt’s new investment arm will seek to generate additional wealth from under-utilized state assets rather than investing surplus oil and gas revenues as Gulf countries do. Partnering with the private sector, the fund will seek to attract domestic and foreign investment and build on economic reforms started in 2016 with the flotation of the currency.  Hala El-Saeed, Planning Minister, said in an interview in Cairo: “Egypt has a wealth of assets and companies that have not been properly used and mismanaged over many years, and we are ready to start a real partnership with the private sector to render them productive and more advanced.”  The Egypt Fund will have an authorized capital of 200 billion Egyptian pounds ($11.2 billion) and will start with paid-in capital of 5 billion pounds, 20 percent of which will be injected by the government when it is set up.  Does this mean that those who claimed that El-Sisi is following Nasser’s footsteps were way off and that ceased privatization will continue?  Remains to be seen.

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